Oil price shock, transport service, and wage inequality in an oil-importing country

Abstract

We construct a four-sector general equilibrium model, with a transport sector facilitating commodity trade, to examine the impacts of an oil price shock on skilled–unskilled wage inequality in an oil-importing country. An oil price shock increases transport costs, and this in turn triggers resource reallocation through changes in the relative price of exported and imported goods. Even though both the skilled and the unskilled wage move in the same direction, their relative change depends on the pattern of commodity trade and production structures. This inter-sectoral resource allocation channel, as well as the role of commodity trade patterns, remain unexplored in the existing literature.